Guaranteed minimum income: how much would it cost? (updated)

by John Quiggin on August 5, 2012

We were talking not long ago about universal basic income policy, and there were a variety of opinions about the desirability, political sustainability and implications of such a policy. But, before arguing about those issues, it’s useful to consider whether a basic income is feasible at all and, if so, what kinds of tax policies, and adjustments to other welfare policies, would be required to support it. I’ve considered the relatively easy case of a guaranteed minimum income, rather than a universal basic income paid to everyone, as advocated by Philippe von Parijs and others.

I’m going to work through it with a more or less realistic numerical example, with numbers chosen to simplify the calculations. The first simplification will be to consider only adults (I’ll try to explain my reasoning for children if I get time). I’ll assume that, initially 60 per cent of the population is employed and also that 60 per cent of income (before taxes and transfers) goes to labor, while 40 per cent goes to owners of capital and land. Initially, taxes are 30 per cent of total income, borne proportionally by labor and capital. For the moment, I’m going to ignore wage inequality, and write as if all workers get the same wage.

The simplest way to get to a universal basic income would be to pay it to everyone, then recoup the cost, through the tax system, from everyone above the basic level. While conceptually simple, this way of doing things would be almost impossible to implement except as a ‘big bang’, and is also too hard for me to evaluate. Instead, I’m going to look at a program that first raises existing basic incomes above the poverty line, then makes access to the basic income unconditional for those with no other source of income.

Initially, I assume that 20 per cent of the population is receiving a tax-funded basic income (old age pension, unemployment benefits and so on). Of the remaining 20 per cent, I assume that 10 per cent are retired and living on the income from savings (part of the capital share) while the other 10 per cent are dependents of workers, including non-employed spouses, students and so on, or else are getting by somehow in the informal economy. To keep things simple, I’ll treat them all as dependents of workers.

The set up so far means that the average worker earns income equal to average total income per (adult) person, and after tax income equal to 70 per cent of average total income. Allowing for dependents, each person in an employed household gets an average income equal to 60 per cent of average total income. (For the US, these figures are about $60k, $40k and $35k respectively).

Suppose to start with that the benefit is equal to 20 per cent of average earnings. That implies a cost equal to 4 per cent of total income. I’ll assume that a benefit equal to 30 per cent of average earnings is enough to put a person above the poverty line, which would raise the cost to 6 per cent of total income (the implied numbers are way above the official US poverty line – 12k and 18k per individual). Obviously, that’s not a big deal in itself – plenty of countries have conditional benefits that put nearly everyone above this (relatively tightly defined) poverty line.

So, what matters is making the benefit unconditional for those with no other income of their own. As a first step, that would mean paying the basic income to the 10 per cent of the population I’ve classed as workers dependents, raising the total cost to 9 per cent of income. That requires an increase in the total tax share from 30 to 35 per cent, which is significant, but still well within the range of ordinary variations. Assuming the tax increase is borne equally by labor and capital, the result is to reduce average post-tax earnings to 65 per cent of total income. However, because most of the benefits flow to workers’ dependents, there’s actually a small increase in the average income of worker households, net of taxes and transfers.

The big question is whether current workers will respond by leaving the workforce and relying on the basic income. We’d expect and want this to happen to some extent – the whole idea is to free workers from absolute dependence on wage income. But if the shift is too large, the tax burden will become unsustainable.

How large is too large? Suppose the employment rate falls from 60 per cent to 50 per cent, and that capital income falls in line with labor income, so that a larger benefit cost is being supported by a smaller income. The cost of benefits is now equal to about 15 per cent of total income, an increase of 10 percentage points from the initial position. Again assuming the cost is shared equally between capital and labour, the average tax rate would now be about 40 per cent. Depending on the design of the tax scales and the mix between income and other taxes, the marginal rate for the average worker would probably be around 40 per cent, and with a moderately progressive tax scale, lots of workers would be paying marginal rates above 50 per cent.

Summing up the exercise, I’d say that a universal basic income of the type I’ve sketched out here is economically feasible, but not, in the current environment, politically sustainable. However, while economic feasibility is largely a matter of arithmetic, and therefore resistant to change, political sustainability is more mutable, and depends critically on the distributional questions I’ve elided so far. A shift of 10 per cent of national income away from working households might seem inconceivable, but of course that’s precisely what’s happened in the US over the last twenty or thirty years, except that the beneficiaries have not been the poor but the top 1 per cent. So, if that money were clawed back by the state, it could fund a UBI at no additional cost to the 99 per cent.

More generally, political feasibility depends on both the path by which a policy goal is approached and the political and social framing of the issues. I plan to come back to this later, but I’ll be interested to read people’s thoughts now. Feel free to comment both on the validity of my estimates and on the political and social aspects – both will be valuable to me.

Note I’m not sure that this is the right framework in which to analyse a Universal Basic Income, in which everyone, regardless of means, would receive the payment, financed by taxation on those receiving more than the UBI, but I’ll have a go. I’ll look at a UBI that would yield final incomes, net of taxes and transfers, similar to those of the guaranteed minimum I’ve considered. In the framework of the example, the gross cost would be equal to 30 per cent of total income. Deducting the costs of existing welfare payments that would be replaced would bring this down to 26 per cent, but taking account of people shifting from employment to the basic income would raise it again, to a bit above 30 per cent. That would imply average tax rates above 60 per cent, and with modest progressivity, marginal rates of 80 per cent for workers on above-average incomes. That’s not inconceivable (existing systems of means-tested benefits cab have effective marginal rates of taxation above 80 per cent), but it seems a lot less feasible than the roughly equivalent GMI, which would be hard enough it itself.

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Attempting to make the “basic” income one which is above the poverty line. Forget the US for a moment with their strange poverty definition and go with the more usual one, less than 60% of median income adjusted for household size (I can never remember whether this is before or after housing costs).

That’s where the very large costs come in. As Charles Murray showed (yes, I know, but his “In Our Hands” has been vaguely praised around these parts) a “basic” income of some $10,000 per adult per year can be funded out of current welfare sending. I’ve seen claims that something similar (euqivalent to the pension guarantee of some £130 a week I think?) could be done for the UK.

That a basic income can be funded roughly within the current system I think can be shown. Trying to make that basic income above the poverty line is, I think, where the maths gets very stretched.

“The big question is whether current workers will respond by leaving the workforce and relying on the basic income. We’d expect and want this to happen to some extent – the whole idea is to free workers from absolute dependence on wage income.”

I’m not entirely sure that is true either. One of the arguments in favour of a basic income, an unconditional one (please note, one argument in favour of, not the only one) is that it will hugely reduce marginal tax and benefit withdrawal rates, thus potentially increasing labour supply not curbing it. Given that such rates are over 60% for some 3 million in the UK, above 80% for hundreds of thousands and for some unfortunates above 100% this is, for me at least, a very strong argument in favour of a basic, unconditional, income.

I think Katherine has that exactly right John. If a person’s right to a the basic income is not genuinely unconditional but depends (or varies depending) on your degree of access to other income, then we’re discussing a very different concept to the one proposed and defended by people like Philippe Van Parijs.

My own interest is more ethical and cultural. In order for any UBI or similar scheme to facilitate our move into a post-employment economy (and, eventually, a post-economy economy), it can’t be a matter of pity charity liberalism. The moral defense of such a system has to refuse the notion that there is any superiority at all in exchanging work for resources. We’ve got to get past the idea of human deserts, of reciprocity, of exchange.

of course that’s precisely what’s happened in the US over the last twenty or thirty years, except that the beneficiaries have not been the poor but the top 1 per cent. So, if that money were clawed back by the state, it could fund a UBI at no additional cost to the 99 per cent.

But to do that you have to defeat the 1% in political combat, in an arena where money is your sword and shield, or if you have enough of it, more like a helicopter gunship armed with cluster bombs and napalm.

The objective should not be a basic level of income; the objective should be a basic level of ownership of capital.

The problem with providing income is that it becomes an open-ended committment. However, if you can provide a basic level of capital, providing that the legal set-up prevents running down of the capital, then the transfer to the poor is a one off event. Indeed, by managing the capital build up via compulsory saving, this could be acheived with minimal taxation. The principles behind compulsory saving in this manner are straightforward, it is already used in Chile, Singapore, and indeed in Australia for pensions systems.

Incidentally, JQ, as mathematician and someone who retains an interest in Marxian thought, I think you will also find the theory very interesting. By using Lotka-Volterra and general-Lotka-Volterra models in simple dynamic cycles using real and financial capital, it is possible to explain income and wealth distributions, company size distributions and endogenous boom and bust cycles. Somewhat to my surprise (and a little to my embarrassment) the theory validates classical and Marxian analysis. Most intriguingly the models threw out a simple formula for the split between returns to capital and labour – one of Kaldor’s mysterious facts. The formula can be derived trivially from basic definitions in half a dozen lines, and is not dependent on the model. The formula also suggests a direct causal link from increased debt to both increasing inequality and increasing financial fragility. For an overview of the theory, go to:http://www.econodynamics.org/sitebuildercontent/sitebuilderfiles/bullets.pdf

A couple quick thoughts–I need to work through this with pencil and paper but am on my way out the door.

One significant proposal for basic income funding is to fund it out of fixed resources(“Land”–actually fossil fuels), rather than primarily from labor or capital; if one looks at the share of US income going to oil producers in 1970 vs today, this seems to be a plausible significant contributor.

If existing redistributory spending (both state pensions and means-tested benefits) are replaced by the basic income, this significantly changes the total redistribution.

kagiso @7 has the right idea about wealth distribution being more important to focus on than income distribution, with income being (at least in part) a function of wealth controlled. No less importantly, it goes to equality of opportunity rather than equality of outcome (which should make it more politically palatable). After, all, what makes for greater equality of opportunity than ensuring that all people start out controlling identical amounts of capital at the beginning of their economically productive lives (i.e. before they had the chance to earn anything yet). Using the money from annual Medicare, Medicaid and SS expenditures would have every 18 year old starting with almost $400k (which, growing at only 3% p.a. would allow one to retire with ~$1.7M). And that’s not even taking into account the money raised via estate taxes, the increased innovation from small groups of young people being freer to try out the market for their ideas, or the increased scope for employee ownership of companies, since each hire will be able to bring (and leave with) both capital and labour.

Have you thought through the repercussions of this new type of socialism? Are any strings attached? Are we saying that any able bodied person would be able to not work forever and receive this basic income? This is frightening stuff and I do not doubt your good intentions, but this will eventually guarantee misery for all. It’s been tried, it failed. The only system that has consistently been able to raise the standard of living of the common man in the history of mankind has been the free enterprise system. Economic engineering of this type will fail unless you guarantee benevolent dictators or governmental angels in perpetuity. Cheers!

It’s not clear to me how John can conclude that a universal basic income (UBI) is “economically feasible” without being able reliably to answer his own question about how many workers will leave the workforce because they prefer the welfare payment. Of course, as more workers opt out of the workforce, wages would be forced up (all else equal), which should make work comparatively more attractive.

One other effect that John does not explore concerns immigration, as individuals would naturally prefer to live in countries with relatively high UBI (relative to costs of living) over countries with lower UBI.

Finally, a couple of the comments in this string, especially those in a more (post- or neo-) Marxian vein, strike me as contrary to the title of this blog, implying that humans are not just improvable but perfectable.

What Freddie said at #5. When work is not made oppressive, most people, particularly most successful people, enjoy being productive/helpful/integrated. The incremental resource-rewards for work could be fairly small. That would be the end game, voluntary labor with rewards not conceptualized primarily as financial. A long way from where we are, in fact that would be the problem we might hope to solve.

Today a lot of jobs exist because “people need jobs,” not because the work needs to be done. If the jobs that went away as a result of the UBI were those jobs, this would represent a net benefit to society, because the overhead associated with these jobs would go away. There are other costs to society that stem from the basic need people have for food and shelter, which does not go away simply because there is no job for them, and which therefore drives them to commit petty crimes. Petty crimes have a very high overhead cost compared to direct cash transfers—a stolen car radio might net the thief $20, but costs society $400 or more to replace.

A UBI would also free people up to work for free on things that they consider important, rather than having to do some make-work in order to scrape by. A lot of this work would increase the overall quality of life in our culture—people who really want to create art would have time to sit around and get good at it, and would be able to sell it or share it for whatever the market would bear, rather than having to sell it for enough to live on or stop doing it.

A UBI would also result in a lot less need for personal injury litigation. Right now, if you are injured and may no longer be able to work, and are young, then you are in pretty serious trouble. This creates a huge tax on the health care system, and a huge market for insurance and for fault-finding, the purpose of which is essentially to do what the UBI ought to be doing: sustain people who have fallen on hard times through an accident.

The point here is simply that yes, a UBI would result in fewer people working. But it would also save a lot of money, so that the effective burden of paying for it would be lower. Sure, taxes would go up, but insurance costs would go down. Waste, in the form of people taking jobs and then not doing them or doing them poorly, because they don’t really want those jobs, would go down. So it’s not at all clear to me that there’s even a net cost increase associated with a UBI—it’s entirely possible for it to be all upside.

Back in the 1980’s the somewhat eccentric Trinity College Dublin economics lecturer, Raymond Crotty proposed a national income based on Henry George style land taxes. His books are long out of print and so far as I know, not available online, but he did some interesting number crunching to suggest that it would be enough to provide a reasonable base income, although he assumed that there would be huge savings in bureaucracy (reasonable in theory, maybe less so in practice).

It did occur to me at the time that however utopian the idea seemed, it did have the virtue of both simplicity and political realism. I think all attempts to create national minimum incomes are always going to fall down politically – the idea of people getting ‘something for nothing’ is anathema to the middle classes of most developed countries. So the notion of tying a specific tax (it might not just be land taxes, perhaps also resource taxes) and dividing it absolutely equally among everyone has a sort of justice and simplicity that might just be acceptable and would be politically robust (i.e. once implemented, it would be very difficult to reverse it due to the sheer number of ‘winners’ under the scheme).

1.) The payments system is taken back from the Visa/Mastercard debit/credit folks (where it is currently exacerbating income inequality — why is Bank of America giving me a kickback of 1% to 3%, and whose paying for that, if not the poor and merely middle-class?) So, everyone has something like a debit card (maybe it’s like Google Wallet, and virtual) cum identity verification, and gets credited ~$1000/month by the Central Bank in units of CB currency issue. (See the Influidity blog, for fuller explanation of why this would be a very good idea, for institutionalizing monetary policy in the 21st century, digital credit age.)

2.) There’s a bit of paternalism at work, behind the digital scenes. There’s no takeback or needs-testing, but there is some capacity in the system for sequestration: welfare agencies or guardians (parents?) can target minimum allocations to food (food stamps — which are a debit card now, anyway, not stamps) or shelter (Section 8 in the U.S. policy parlance), with appropriate modifications for people, under out-patient psychiatric care, prison half-way houses, substance addiction treatment, etc.

3.) Taxes on economic rents — “land”, corporate profits, high ‘labor’ incomes — executives exploiting power and hollywood stars exploiting the accidents of celebrity — are managed as a fiscal policy to stabilize the economy. We worry about people with a basic income giving up on ambition or responsibility (see 2, above), but we worry even more about people, with excessive power or luck, running out of control in pursuit of status and sadistic satisfactions.

In the U.S., we’re living in a society unmade by low marginal income tax and corporate income tax rates, which have the effect of leaving economic rents largely untaxed. It’s the 21st century equivalent of the 18th/19th century German Junkers or the British landed aristocracy running out-of-control, with ecological catastrophe instead of world war looming on the horizon as consequence. With the Central Bank spewing free money at banksters, there’s a boomtime in schemes of extraction — innovative usury — from the poor (and everyone, other than the 1% is poor, or soon enough will be): for-profit education (student loans are an absurd abuse), for-profit health care, payday lenders, debit card kickbacks aforementioned, dental care financing, veterinary health insurance (the prices of vet care for pets has skyrocketed over the last 15 years in the U.S.) — anyway, enough of that rant.

I realize that Q is trying to think through the feasibility, and don’t wish to derail. The point I’m trying to make is that we might want to think about this feasibility issue in a framework of terms of solving problems of the financial system, rather than strictly in terms of solving problems of the social welfare system.

The financial system is supposed to help us optimally allocate funds for investment, but it does a lousy job, for a variety of reasons. One is that many worthwhile investments cannot be made unless a business model can be devised, which captures a large part of the return on investment privately, for repayment of a loan or a capital income for a capitalist owner/investor. A competitive market economy, though, tends to cause the returns on innovative investments to diffuse away into economic rents on only incidentally related factors of production. The returns on general education, for example, do not accrue to individuals with education so much as to landlords, particularly in urban areas where the educated congregate to use their education in productive ways. The financial system will work hard, not to identify the best investments, but the sources of power and economic rent, which assure the possibility of private returns on investment, and this dynamic has a tendency to elide into usury (or fantasy frauds, such as ponzi schemes, but that’s another story).

One way to think about a basic income, and its design, would be as a way of correcting for the biases of the financial system, providing means for highly decentralized sunk-cost investments and risk-taking by individuals. And, in that regard, I would think it might be worthwhile thinking not in terms of how much of a burden would have to be imposed to up the proportion of national income funneled thru the tax-and-transfer scheme, but how much of distorting economic rents have to be captured at the upper end of the income scale, to bring the worst impulses of the (private) financial system under control.

If you want to evaluate the effect of minimum income on employment, the crucial parameter is minimum income vis a vis minimum wage. The minimum income should be based as a % of the minimum wage and not of the median wage. Of course, a higher minimum income also pushes low wages up so that the correlation goes both ways to a certain extent, creating a virtuous cycle.

I understand that your model doesn`t account for wage inequality, but this is a crucial issue. The minimum wage parameter is also crucial when it comes to political legitimacy: it is very hard to defend a minimum income that gets too close to minimum wage, but it is much easier to defend a minimum income that, while not too close to minimum wage, ends up also raising the wages of the working poor.

Again, I understand this brings down in part the objective of a post-employment policy, but, again, one thing that your model doesn`t account for and that is crucial for this must be addressed: children. Poverty is concentrated on households with children, and their right to a minimum income is much easier to defend politically. Also, taking them out of the equation weakens the “students” and “non-employed spouses” case. So they should be part of any successful narrative that aims to advocate for minimum income, as it changes the frame of reference from the image of “lazy freeloaders” to that of “innocent children” and their caretakers.

I base this on the experience of Brazil – which is of course rather different from Australia and other countries – but I think the points are still valid to a certain extent.

Well, looks like the decision has already been made in some other post, but:

1) I have always assumed that Hayek, and especially Milton Friedman were arguing in bad faith when advocating a Basic Income. The goal would be to combine all diverse safety net programs into a single check, and then slash that check when fiscal problems arise, never to be restored. If this was not the goal of Hayek and Friedman, I am certain it will be the goal of say current congressional Republicans, and am suspicious about the intentions of neo-liberal Democrats.

2) It will not be so easy to maintain the smorgasboard of social programs once a substantial UBI is enacted. Once a check for $20-35k is being sent to everyone, healthcare, retirement, unemployment insurance etc will at least become targets of attack as unnecessary.

3) A disaggregated safety-net has a lot of bugs that are also virtues. Farm supports, employer based healthcare and retirements etc, municipally managed childcare from black grants do create unjust holes compared to universalistic national programs, and are subject to abuse etc. However they also create very specific local constituencies that are incented and determined to proect their benefits, be it via strikes or elections of local or regional representatives.

4) Better is the Job Guarantee of the MMT’s and Post-Keynesians, at minimum wage as a countercyclical measure as an addition to all existing, new ( + UBI?), and resurrected safety net programs. The JG will create local workers providing local products and services, and thereby gain a powerful active constituency.

Paulina Tcherneva and the other heterodocs at UMKC and Bard have a substantial literature discussing JG vs IG, on macroeconomic rather that socio-political grounds.

Still reading the book, but the Japanese disaggregated system is a bit of a grossly inadequate muddle, but it does have the virtue of sustaining itself for decades.

Considering Europe as an example of politically possible, I would be interested in seeing an analysis where the taxes are largely raised on consumption and thus relatively regressive. It would be a case of giveth and taketh and probably not attractive to anyone but I wonder just how unattractive.

From an economics perspective, “how much would it cost” is the wrong question to ask. First of all because it’s impossible to answer (like Ted Lemon mentioned, our current system of forced make-work has a lot of hidden costs which the UBI could eliminate), but mostly because the cost isn’t important. Most economists who are not right-wing schills are in agreement that an increase in government spending would be very, very helpful for the economy right now. The only question is, how can we maximize real GDP growth? Or alternatively, how can we maximize nominal GDP growth without letting inflation run out of control? I think the UBI would cause a massive boost in GDP, but I’m not aware of any studies showing exactly how much.

This system would work far better if people were given jobs instead of just income. Providing just income generates several problems:
(1) you don’t have the problem of people having the choice of working vs. not working
(2) there are a good number of people who work “black market” jobs that aren’t taxed. In fact, probably the biggest incentive with UBI would be to work an untaxed job while collecting UBI.
(3) Minsky and other theorists argue that distributing money without increasing output generates inflation.
UBI would solve some problems, but create others that a jobs guarantee wouldn’t. Unfortunately, the tendency in the US has been to move towards a more monetary welfare system. Even the government jobs that exists are pretty far from this vision: most are stable, well-paying, long-term jobs that are not available to the unemployed.

Are we discussing UBI in context of accepting a neoliberal economics, with orthodox notions of what cause inflation, or the macroeconomics of distribution and growth, or the relationship between taxes, subsidies, and disincentivization (even if we demand a different politics, as F. Deboer does?) – or is post-Keynesian theory a fair line of critique here?

I mean, bully for the post-Keynesians and all, but that spirals inevitably into high theory rather than UBI.

@Katherine and Chris I’ve edited the post to do a better job on the UBI/GMI distinction. My tentative conclusion, which I think was the one reached by Chris and Corey a while back is that a UBI is unlikely to be feasible within anything like the existing economic order. OTOH, the conceptual framework for UBI is derived from the existing order (it wouldn’t make sense in a post-money society, for example), so it seems to me that GMI is the right concept to consider.

@Mike Huben – if you check the post you’ll see that other government spending is taken into account

@Marcel – fixed, thanks

@Bob McManus – mildly surprised to see you advocating incremental reform, but that’s a central point of what I’m advocating. Rather than going for a big bang replacement of all existing benefits, the idea is to increase those benefits and extend their availability until you have a GMI

Well Eric, if your proposal is to give jobs instead of income then you`re not really talking about the same system at all. Or is it that what you mean by “this system” is our current socioeconomic system as a whole? I`m sorry if I misunderstood you, but anyway…

1. Many people here are actually happy to create this “problem”. We`re “pro-choice” when it comes to jobs, if you will.
2. True, black market jobs may get a boost. Of course, the same works for people trying to avoid taxes in general, so it`s not like we don`t already cope with the same problem when it comes to the rich. And, of course, the rich are much better at this game, while the poor tend to be worse than government officials. There are very technical (and very boring) ways to minimize this risk, and it`s somewhat similar to what is already done to catch “amateur” tax evaders.
3. I guess any economist would say, from Minsky to Vladvostovsky, that creating money creates inflation. Of course, if it comes from taxes it is called redistribution, not distribution. Did you mean by that that there is a higher propensity of the poor to spend? Well, if so, you`re right but, again, many of us thinks that this is good.

This discussion thread has some pretty bizarre aspects. “Post-employment economy”? We all just sit around and twiddle our thumbs while roast chicken magically fly into our mouths? I can imagine a future world where robots do all the work and humans just die of boredom, but not for >7 billion people unless you have three more habitable planets hidden somewhere and not within the lifetimes even of people born on this very day.

And well, resources, that brings up another issue. There is a great danger in trying to think issues like pensions and basic incomes through only in terms of amounts of money. Just take the idea that it would be better to have a capital stock that people can live off instead of an income stream. Leaving aside the obvious problems of stock market crashes and bankruptcies, unsophisticated investors gambling their own or, in the case of pension funds, their customers’ money away, etc., the simple problem is that any heap of money and any capital stock are only worth the material goods that you can buy with them.

If your pension fund says $1 million at your age of retirement, but there are no workers who produce things because, say, as an unrealistic example merely to make a point, nobody has thought to have any children for the last fifty years, then you cannot spend those dollars on anything. If there are a lot of retirement dollars but few productive workers, your dollars will simply not be worth as much as they seemed to be. But the point is, you get the same problems with capital. Just for starters, shares in oil industry may not be so hot once oil is running out. Having the state guarantee an income stream at least has the advantage that the state can provide it independently of what parts of its economy fail or prosper.

More generally, it is important to realize that the basic question of economics should never be: how does money circulate around or accumulate at point B?, but: how do we make sure that everybody has accommodation, food and clothes, and preferably basic medical care? You then need to make sure that the money is around for people to purchase these things, but ultimately it is just the blood and not the body.

And again, “post-employment economy”, “jobs existing only because people need jobs”, etc. Hah. We need to transition to sustainable energy forms, and consequently also to a completely different transport system, better yesterday rather than tomorrow. We have the choice between (1) having so many children that ultimately billions will die of starvation or (2) few children who will then have to care for overwhelming numbers of seniors living ever longer. At some point, even if it takes until 2300, we will see another 1859 level sun storm which will then most likely wipe out all electronics on the planet, from harvesting machines to GPS to the internet to manufacture lines. Seriously, lack of productive employment will be our last problem in coming decades and centuries; lack of will to invest in it is and will be the problem. Having the newest iGimmick, flat screen TV or a third Yacht is just so much more important than making sure that grandma lives in dignity or that we phase out petrol cars.

I’ve been knocking around the idea of a guaranteed minimum income with friends, so this is real case of synchronicity.

First, employment is likely to rise rather than fall in the wake of a guaranteed minimum income. The logic? People today stuck in dead-end jobs would likely give their dream a shot, whether it be buildng custom furniture or freelance writing or what-have-you. Now, 80% of new businesses fail, but that leaves 20% that succeed — and businesses typically hire employees. Thus the increase in employment.

Second, GDP would probably rise. As to why, see above. So a GMI would probably more than pay for itself.

@Marco
I can see the appeal of being “pro-choice,” as you say, but I just wonder about the ability of such a system to operate within our current capitalistic framework (i.e. it might require an alternative and probably better political-economic system). In this utopian vision, as I understand it, people will do their jobs out a sense of satisfaction, enjoyment, or purpose. Of course this goal is far in the future, but I don’t think I am wrong in seeing this as the end goal.

But I wonder whether this policy, or even this end goal, is contradictory with capitalism (this hardly makes me a pro-capitalist, Marx would probably agree). A core obstacle is that most people don’t like their jobs (around 80% according to some measures). One might say this problem began when man was expelled from the garden and had to work for a living.

Now, one could argue that this is the whole point of UBI is to create a situation where no one would unwillingly do those undesirable jobs. The problem becomes: if you could live happily not doing one of these jobs, why would you do them? In other words, if you set the UBI high enough that people can live happily off it, you end up with no one doing unpleasant but necessary jobs. If you set it lower, it is less effective as a deterrent to workplace abusers. A jobs-based program, on the other hand, would allow you to set a higher UBI without undermining necessary jobs. (as for utopias, I am no expert but it may be more just to have everyone doing less work rather than a few people doing all of it).

My view is that, while a guaranteed income is a prerequisite for a decent society, it is easier to sell as a Georgist “citizens’ dividend” concept: Alaska went for it, for Christ’s sake, and Milton Friedman advocated it for Iraq. The misleading analogy to common stock makes it palatable to right-wingers even though it helps poor people.

@Marco: Relationship to minimum wage is vital and I mean to come back to this

@Substance: I have the impression you are US-based, so you might want to note that “slightly above poverty level” as defined here implies about double US poverty line and well above US minimum wage. I mentioned this in the post but, from my previous discussions on this, it seems very hard for US commenters to shake US-derived intuitions. Probably the same is true generally, but the US looms large enough that it’s hard to avoid thinking about, even from the antipodes.

Speaking from Australian experience (both personal acquaintance, and the disappearance of aged poverty as a political issue) , it’s possible to live in reasonable comfort on the Age Pension (28 per cent of Average Male Weekly Earnings), given decent health care, rental assistance for non-homeowners and some ancillary benefits. Most of the old people I know are reasonably happy campers, at least as far as income is concerned, and many have little or nothing beyond the pension.

Note to John, but posted also for the benefit of others: Van Parijs’s essay “In Defence of Abundance” looks germane to some of the questions raised here about tradeoffs between standard of living and the necessity of toil. You can download it for free.

I used to believe in this myself, in good faith, but now I see is a bad idea for a number of reasons. The correct idea is the combination of jobs-guarantee with all the traditional aspects of social welfare and social insurance state, including free medical care, free education, guaranteed retirement. All these things cannot be boiled down into “income.” No matter what income you get, it does not in any way insure you will get what you need; prices will be bid up, cream will be skimmed (even worse with one time capital distribution–that is doomed to disaster, as in new Russia), there will be luck and lack of luck, corruption is inevitable, and sometimes people even have lack of prudence, discipline, etc.

A job is not simply an income stream. It is a connection to society and an opportunity to contribute. These are things that people need, of the highest order, even if in capitalistic society the contribution may be highly alienated for most people, it is still better than no opportunity contribute and no connection to society.

@Charles If you read the post, you’ll see that I’m not assuming away public health or education (they stay unchanged) and I’m considering an expansion of all forms of income support including retirement income.

As regards the vital necessity of “a job”, I’m unconvinced. People clearly need occupation, connections and so on, but they’ve managed this through the vast bulk of history without “jobs” in the sense I take you to mean, that is, turning up for prescribed hours to work for pay under the control of someone else. I agree that it’s essential, in the current state of things, that this be an option, so I support a job guarantee, but this would work much better if people had the option to pursue other life-projects while still getting an adequate income.

@Chris Thanks for this. My immediate response is that a GMI (at a level that meets needs, however that is defined) satisfies Parijs’ requirement for weak abundance. I’d interpret the analysis in the OP as
(i) agreeing with Parijs that the conditions for weak abundance are in fact satisfied in developed countries
(ii) suggesting that, even under conditions of weak abundance, a UBI is unlikely to work

With regard to the minimum wage, wouldn’t a minimum guaranteed income set a “wage floor” and you could simply leave wages to be set by the market without worrying about people becoming working poor, but if the MGI is conditional on unemployment, as in there is some sort of trade-off that diminishes MGI as you start earning money, you will end up with a much higher effective minimum wage than you do today, pushing up prices of particularly service-heavy industries. You see this effect in many European countries.

Taking a cue from behavioral studied it is also problematic to have this kind of unemployment conditional AND willingness-to-work unconditional set-up, it is effectively saying “We’ll give you this money, and if you get a job that pays you more money we’ll take it away, but we don’t care if you ever do that”. I think this particular strategy may very well spur an increase in the shadow economy as people say “they’re going to take the money away if I tell the tax-man I have a job, so I’ll just do it on the side”. Even when it is something as unitary as money, people tend to feel a loss once they have to give it up, even if they give it up for more of the same. The framing of the benefit by including a willingness-to-work conditionality prepares people for the loss.

with a UBI you would have people being able to take jobs for very little in addition to their UBI, and as such it seems like the UBI causes less market distortions and would have less of an effect on prices. You could even see falling wages with a UBI, leading to higher corporate profits then a higher tax income.

_with a UBI you would have people being able to take jobs for very little in addition to their UBI, and as such it seems like the UBI causes less market distortions and would have less of an effect on prices. You could even see falling wages with a UBI, leading to higher corporate profits then a higher tax income._

My guess is that a UBI would have the effect of raising wages in some sectors and depressing them in others. Where a job is intrinsically rewarding – teaching philosophy, for example – then people could be persuaded to do it for a fairly small supplement to their UBI. On the other hand, you couldn’t get people to do the really horrible jobs (miner, hospital cleaner, sewer worker) unless you gave them significant financial compensation and then you’d have to be nice to them at work, else they’d quit.

On the other hand, you couldn’t get people to do the really horrible jobs (miner, hospital cleaner, sewer worker) unless you gave them significant financial compensation and then you’d have to be nice to them at work, else they’d quit.

Unless the UBI level is as low as Substance implies, in which case they don’t really have the exit option after all. If you need your job in order to keep your home and keep feeding your children, then when the boss tells you to ignore safety regulations to get the job done faster/do something that violates your human dignity you are still in a pickle, UBI or no UBI.

If the UBI is uncomfortable, then it doesn’t solve workplace abuses, and if it’s comfortable, there’s a danger that many people will pursue their dreams in ways that are objectively unproductive while the garbage continues to rot at the curb.

CB, that seems very strange. Philosophy professors make more then most miners, even with the large number of competitors for each job. Why would a UBI change the equation for professors but not miners?

Not pretending to grasp this at a wider economic level, but having had a feast-or-famine kind of working life myself, I think this is an interesting thought experiment.

@Eric Titus : “better if people were given jobs instead of just income”
Others already pointed out the “make work” problem.
While some would simply spend it on booze, fags and the pokies (which I guess is still economic activity) I suspect that left to their own devices, many would find or create far more productive work…

@Chris Bertram : “On the other hand, you couldn’t get people to do the really horrible jobs unless you gave them significant financial compensation”

Well, for me personally, that’s a positive thing.

Dumb question: what’s to stop (for example) a sudden across the board jump in the price of eggs / rent / mortgage rates by big entities deciding to siphon the money out of the local economy?

@Happy
I doubt many people would use UBI as an incentive to create more productive work. There’s plenty of things to do once you reach a basic level of income. I live in Williamburg, a “hipster” area of New York mostly populated (well, until recently perhaps) by post-college young folks making just enough to support their lifestyles (along with plenty who have parental help). I’m not saying this is a bad thing–I just wonder whether most people wouldn’t live lives of leisure if given the same amount without work.

UBI seems to imply a weird sort of utopia in which some people do the unpleasant work that satisfies material needs (presumably for large salaries) while other people produce art/philosophy/happiness. Many would argue that a more reasonable goal, given a level of productivity that can meet everyone’s needs, is that the length of the working week is steadily reduced and job conditions improved. But because UBI generates a work-no work distinction it doesn’t leave room for a part-time middle ground.

Bruce Wilder #17 reminded me of the Junker Fallacy (or is it a fallacy? I’m no economist), but that’s about poor growth rather than political effects. In England the People’s Budget of 1909 was passed in 1911, before the war but without the proposed Georgist land tax and perhaps too little too late anyway. Given how similar the first and second world wars seemed to me, I’ve always thought the two should have a common explanation.

It sounds attractive in theory but I’ve always worried that UBI and similar proposals have built in inflation problems(and I mean real inflation problems, not the ZOMG it might get above 2% so we better slash and burn the economy worries of the ECB and Fed).

Essentially you either do or don’t index the amount to inflation. If you do, and lots of people use it, this can really spike inflation for basic needs and even more for basic services as the supply goes down and the demand (through access to the basic income money) goes up relative to the total work done. If you don’t index, the UBI quick,y becomes worthless and we end up right back here.

This is especially true in plans where even workers get the cash amount, basically you just raised prices on everything if you don’t index and you set off a huge spiral if you do.

Am I wrong about this? Is it only true for rally high numbers of “lots of people” such that proponents don’t think it likely?

Where a job is intrinsically rewarding – teaching philosophy, for example – then people could be persuaded to do it for a fairly small supplement to their UBI.

The level of exploitation in areas considered attractive by many (e.g. arts, media, fashion, NGOs, PR) is already incredibly high – it’s so bad that calls for government action are becoming louder and louder. I don’t think the state should make it even easier for irresponsible and/or incompetent employers – people want real jobs.

I’d appreciate a little more discussion of the numbers: when I look at a 60% of median per capita money income (of people with income–census table B07010) I get $15,000, which is very close to full-time minimum wage.

I’d do the math this way; paying every adult that amount would cost about 20% of GDP. If it replaced Social Security (and for a two-person family the amount is close to the SS maximum), that would pay for about half of it. That leaves 10% of GDP to raise from somewhere–or means that only the lower half of the income distribution gets to keep the benefit. (And it should be able to replace the direct cash transfer programs that are means-tested.)

Somewhere, my math and JQ’s are very different; I’m getting that simply redistributing current benefits would provide a UBI to half of the population.

@Chris
I don’t think we’ll ever be in a situation without workplace abuses of any sort. As far as I understand the UBI would be at a level that allowed you to get by in a relatively reasonable manner, that is, enough to cover for the cost of living and basic participation in society and its activities.

UBI wouldn’t solve workplace abuses people, it wouldn’t solve the problems of people who take on a mortgage or other loans. People would still get themselves into financial situations where them working becomes a necessity to maintain their standard of living, rather than a possibility to increase it.

The best possibility for people who are in a situation where a loss of their job would heavily impact their financial life (i.e. people who didn’t listen to Suze Orman) would be some sort of unemployment insurance (let’s say an average unemployment % over a 20 year period of 5%, assume a maximum payout of unemployment insurance of 80% of your previous payment with a cap at 80% of the median wage, this could be covered by a contribution of about 3% (or so, fuzzy math) per working person into minimal interest-generating funds and payout could then be conditioned on X, Y and Z)

@Watsonn Ladd
A UBI would most likely increase the risk/physical wear premium paid for jobs in heavy industries. Jobs that are physically wearing and/or socially looked down upon would collect a premium to make up for the fact that no-one would be willing to work in them because they needed ANY job. I am not sure if this is the case for miners, but generally speaking, a job that no-one really wants to do would be rewarded with higher pay in a situation where no-one would have to do it.

Being a professor is a prestigious job (so people should be willing to accept less pay for it, but a certain level of pay is required to maintain prestige) with many applicants (so more competition driving down the price), that doesn’t carry the physical wear and tear of a mining job. On the other hand universities would still want to have a high pay to attract the best candidates and make the best professors feel relatively rewarded for their hard work. As for the applicants, they could do research all on their own while living off of the UBI.

Over-all it is hard to say, I am not even sure what the difference is between the pay of a professor and a miner right now, but a UBI would probably impact the dynamics of both labour markets.

@Sebastian H
An inflationary spiral would only happen if the demand created by the UBI (assuming sticky wages so staitonary labour input costs) created a shortage in goods demanded by the people whom the UBI makes a difference. Most inflation in the US is caused by supply-side shocks and changes moreso than aggregate demand and increased production costs (citation needed, if anyone have sources on this or can correct me please do). Many sectors providing basic goods (food, construction materials, oil/gas, power, manufacturing) are highly mechanized (or can be) and would not be forced to pay droves of low-income workers premiums for having poor jobs.

as mentioned above a UBI would supplement the income of everyone and less wages would be necessary to maintain an improved standard of living, possibly reducing the input costs of companies, wages have a tendency to not go down that easily though, and there is also the above mentioned effect of people wanting to be paid more to work jobs they don’t like, when they don’t have to do them.

A solid UBI would be a major driver for technological advancement. There would no longer be the option of throwing lots of cheap labor at repetitive manual tasks: employers would either have to use more expensive labor (because of the opt-out provided by the UBI) or they would have to reduce their need for labor by automating (at least partially) tasks that are currently done manually. This would move us closer to a true post-scarcity society.

The ancient Greeks invented the steam engine, but they never used it because they had plenty of cheap slave labor. The American South lagged far behind the North in industrialization because even after slavery was banned, labor was always cheaper there (and African-Americans were often forced into conditions that were slavery in all but name). Cheap labor is not only bad for workers, but bad for societal progress.

But because UBI generates a work-no work distinction it doesn’t leave room for a part-time middle ground.

Isn’t this exactly the difference between UBI and GMI, or am I misunderstanding the terminology?

UBI isn’t reduced if you work, so you are free to work part time, full time, whatever. If the UBI is enough to live on, you don’t need a minimum wage at all, or not much of one. Opinions vary on how much hobby-work will turn out to have societal benefits not easily accounted for in conventional econometrics, and how much is just puttering around that does no real good to anyone.

GMI is means tested, so any job that pays less than the GMI is useless (you lose the GMI dollar for dollar) and jobs that pay only slightly more than GMI are useless if you have to pay to commute to them. Because of this, you effectively have to have a minimum wage that is at least a bit higher than GMI.

Because of this difference, UBI costs more and taxes are higher. Whether this is worthwhile is a judgment call.

$1 to $2 trillion (in 2012 dollars), depending how its structured. Rutgers Professor Phil Harvey has been studying this for years.

“The Relative Cost of a Universal Basic Income and a Negative Income Tax… The cost of a negative income htax (NIT) designed to mimic the redistributive effects of a universal basic income (UBI) and set at a level sufficient to eliminate official poverty in the US is estimated using income distribution data for 2002. It is estimated that an NIT satisfying these conditions would have required an $826 billion increase in government spending in 2002, compared to a $1.69 trillion increase for an equivalent UBI. Despite this cost difference, the income and substitution effects of a UBI and an equivalent NIT are shown to be the same…”http://www.philipharvey.info/ubiandnit.pdf

@beowulf The ratio seems consistent with my analysis. That is, a UBI is about twice as expensive, in terms of gross revenue and expenditure, as a broadly equivalent GMI or NIT, which is a lot of churn to incur in return for the benefits discussed above.

Harvey’s numbers are a lot smaller than mine for both UBI and GMI/NIT, because he uses the official US poverty line as the target. My target is about twice as high, since it is meant to actually cover basic needs.

I wasn’t aware, though I probably should have been, that there is a whole journal devoted to this topic.

@Eric(28)
Eric, once you account for MI as a % of minimum wage, there will be an incentive for people to seek jobs. What this ratio should be is open for discussion and I don`t have a formula, but it doesn’t lead to a breakdown of the system. That was the main point of the post I think – it is economically feasible once you work with GMI instead of UBI, something that took me a while to be pragmatically convinced.

Of course there`s a whole discussion of reform x revolution that underlies this topic and Marx would have something to say about it, but I`m guessing most here would agree to an extent with Van Parijs and the idea of a “capitalist road to communism” as something worth of serious thought. A minimum income could free more people from jobs that are not really needed, share more equally the relative abundance advanced economies generate and create space for the pursuit of other socially valuable activities that our current system doesn’t value (i.e. monetize).

I must stress that these activities are not necessarily related to the arts and the elevation of the spirit, as someone suggested. Things like taking care of others and strengthening communities is just as important to many people, who would happily do us all a much better “job” under the circumstances created by a minimum income.

@Quiggin – I think the perceived necessity of jobs in its current format is probably the biggest political challenge. One way to face the issue is to praise the necessity of things that the market doesn’t provide well.

Oops, meant to read Thanks for this discusiom, and also, what provoked it? I am in neuroscience, not economics, but it seems to me to be a great idea about a universal income. Anyone with an “eye to see,” must know that, at least in the States, there is increasingly little chance of employment beyond fifty-ish. There are too few jobs; ther are hundreds or thousands of applicants for one. Insane politicians here talk about extending retirement age beyond 65; but no one here works even CLOSE to that long in the current emvironment, most being laid off (redendant) well before that. We simply cannot demand that people work until they are eighty years old, even though longevity has increased for some, because there ARE NOT enough jobs to sustain this employment, even if all seniors were able to work.. We cannot in the US even keep up with population growth, let alone abxorb even the fifty through hundreds folk. Oh yes, also kids of seniors are still living at home, no jobs, etc. So, universal income is the only way to solve this problem, because there are not jobs for people with experience (over fifty), and not enough jobs for anyone else, either.

@novakant at 47, @CB, surely the point of a UBI is that intrinsically satisfying work wouldn’t attract a salary at all (corollary to the shitty jobs finally getting commensurate pay), in much the way that the current liberal-arts-based “good jobs” in the meeja currently don’t really attract salaries at all. The difference is that they wouldn’t all be stolen by rich people. Universities would, I imagine, cease paying any sort of stipends for researchers and expect people to simply do research entirely gratis, at least the theoretical kind of research that only requires a few brains to operate.

I would like to hear from John Quiggin, and others, on what they thought a post-UBI society would look like, and how that would affect the economics of continuing to be able to pay out a UBI. I imagine that callcentres would evaporate overnight, and a lot of retail and food-handling operations would struggle to recruit (who really wants to work in the meatpacking plant, really?). What would prices of everyday things look like?

(This may be an apposite moment to mention that I bought and read Erik Olin Wright’s “Envisioning Real Utopias” with enormous anticipation of the touted CT book event, slogging through the opening chapters on the history and definitions of Marxism only to find that the event never materialized. Colour me disgruntled on that front. Perhaps we could make do with a seminar on UBI…?)